In the News: 2007

Thailand's Central Pattana Plc (CPN): Sustainable Growth Boosted by Recurring Income and New Projects

Thai News
30 May 2007

A positive on Central Pattana (CPN) is still maintained after an analyst's meeting yesterday (May 28). The recurring rental income will secure company performance, while new projects will help lift earnings. We see the potential for an earnings upgrade, reflecting new development at the former Pre cadet School (Suan Lum Night Bazaar) site and a new overseas opportunity in Vietnam. However, CPN is trading slightly above DCF fair value estimate of Bt24.60 at present, therefore, CPN is rated a BUY ON WEAKNESS.

CPN is projected to deliver better performance in 2Q07 based on improving occupancy at Central World and a better effective rental rate. The company offered an average 20-30% discount to tenants in 1Q07, but these discounts will gradually be lifted after 2Q07. 2007 earnings are forecasted to increase 18% to Bt1,994mn (Bt0.92/share) on the back of the full contribution from Central World at higher current occupancy.

We expect to see long-term growth driven by both organic growth and new projects. The growth of the existing projects will come from a favourable occupancy and higher average rental rate of 10% per annum. The new projects in the pipeline, including Chaengwattana, Pattaya, Khon Kaen and Chonburi, will be opened in 2008-2009. The Rama 9 project is still under negotiation and will tentatively open in 2011. With the four confirmed projects, CPN expects the total saleable area to reach 1,052,960 sqm by the end of 2010, up from 836,660sqm at the end of 2007.

Even with continuing expansion, the company financial position is forecast to remain healthy with an expected 2007 net debt-to-equity ratio of 0.7x. Capital expenditures will be financed from operating cash flow and borrowings. A property fund is another means of financing once the government capital control measure has been lifted. The downtrend in interest rates is another bonus for CPN given the floating-rate debt represents 44% of all debt. The company also plans to issue debentures next month.